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China, Brazil lead Q2 slowing in emerging markets

NEW YORK (MarketWatch) -- Emerging market economies continued to show signs of weakening in the second quarter, with China and Brazil leading the slowdown, according to a new survey.

The HSBC Emerging Markets Index, which is based on surveys of 21 Purchasing Managers Indexes conducted across 16 markets, eased to 53.0 in the second quarter from 53.6 in the first quarter.

Among the big-four economies known as the BRICs, a two-speed growth picture was becoming evident as Brazil and China lag India and Russia in terms of expansion rate, wrote Murat Ulgen, HSBC chief economist for Central and Eastern Europe and sub-Saharan Africa, in the EMI report.

"Brazilian activity growth weakened again, having looked more promising earlier in the year, and China recorded only modest growth. In both cases, manufacturing underperformance was the principal drag on activity," said Ulgen.

Global demand for goods produced in Brazil and China both declined, while India and Russia, along with Turkey and South Korea, recorded growth in new export orders. India posted the largest gain on new orders, albeit less than the previous quarter.

Meanwhile, Chinese manufacturing output has been declining for the past four quarters. The findings underscore official trade data for China, released Tuesday, which indicated the country's exports rose a weaker-than-expected 6.3% in June. The reading was also down from a 15.3% increase in May. Read about China's trade data here.

Earlier Tuesday, Brazilian stocks fell on worries about the weak trade data from China, Brazil's biggest trading partner. Read more in Latin American markets.

Meanwhile, the HSBC report noted that the services sector in emerging markets continued to outpace manufacturing, but overall expansion was among the weakest in the past three years. The results reflect stalling activity in Russia, India, and Brazil, which posted the weakest services sector growth reading in three quarters.

China was the only one of the BRIC economies to record a decline in employment overall, the first fall in 13 quarters. The decline raised a red flag over muted levels of job creation in manufacturing, but further action from policy makers should ease concerns, according to the report.

"Emerging market growth remains resilient in the face of excessive external uncertainties and with plenty of ammunition at their disposal to deploy, they are set to stay on the right track," Ulgen said.